46 C.F.R. Subpart B—Eligibility
Title 46 - Shipping
(a) Applicability. Before you receive a legal or beneficial interest in a Vessel financed under Title XI of the Act which is operating in or will be operated in the U.S. coastwise trade, you and any other Person, (including the shipowner and any bareboat charterer), must establish your United States citizenship, within the definition of “Citizen of the United States” in §298.2. (b) Prior to Letter Commitment. Before we issue the Letter Commitment, you and any Person identified in paragraph (a) of this section, who is required to establish United States citizenship must establish United States citizenship in the form and manner stated in 46 CFR part 355. (c) Commitment Closing. (1) Within 10 days before every Commitment Closing, unless we waive this requirement for good cause, you and all Persons identified with the project who have previously established United States citizenship in accordance with paragraphs (a) and (b) of this section, must submit pro forma Supplemental Affidavits of Citizenship which we have approved for Closing as to form and substance, and (2) On the date of the Closing, three (3) executed copies of Supplemental Affidavits of Citizenship that: (i) Show evidence of the continuing United States citizenship of the Persons in paragraph (a) of this section; and (ii) Bear the date of the Closing. (d) Additional information. If we request additional material essential to clarify or support evidence of U.S. citizenship, you, the Obligor, or any Person identified in paragraph (a) of this section must submit the additional information.
Title 46: Shipping
PART 298—OBLIGATION GUARANTEES
Subpart B—Eligibility
§ 298.10 Citizenship.
§ 298.11 Vessel requirements.
When you apply for a Guarantee, the Vessel for which you intend to receive financing for construction, reconstruction, or reconditioning must meet the following criteria:
(a) United States Construction. A Vessel, including an Eligible Export Vessel, financed by an Obligation Guarantee must be constructed in the United States. United States construction means that the Vessel is assembled in a shipyard geographically located within the United States.
(1) A U.S.-flag Vessel must meet the applicable United States Coast Guard requirements.
(2) An Eligible Export Vessel must be constructed in accordance with the requirements of the International Maritime Organization and must meet the applicable:
(i) Laws, rules, and regulations of its country of documentation,
(ii) Treaties, conventions on international agreements to which that country is a signatory, and
(iii) Laws of the ports it serves.
(b) Actual Cost. We must approve your estimated Actual Cost for the construction, reconstruction, or reconditioning of a Vessel as a condition for issuance of the Letter Commitment. The estimated cost of the Vessel may include escalation for the anticipated construction period of the Vessel. We may contact the shipyard directly and may require you to have the shipyard that has contracted to build the Vessel to submit additional technical data, backup cost details, and other evidence if we have insufficient data.
(c) Class, condition, and operation. The Vessel must be constructed, maintained, and operated so as to meet the highest classification, certification, rating, and inspection standards for vessels of the same age and type imposed by:
(1) The American Bureau of Shipping (ABS), or
(2) Another classification society that also meets the inspection standards of the United States Coast Guard with respect to the documentation of U.S.-flag vessels, or
(3) In the case of an Eligible Export Vessel, such standards as may be imposed by a member of the International Association of Classification Societies (IACS), classification societies to be ISO 9000 series registered or Quality Systems Certificate Scheme qualified IACS members who have been recognized by the United States Coast Guard as meeting acceptable standards with such recognition including, at a minimum, that the society meets the requirements of IMO Resolution A.739(18) with appropriate certificates required at delivery, so long as the home country of the IACS member accords equal reciprocity, as determined by us, to United States classification societies.
(4) Except in the case of an Eligible Export Vessel, the Vessel must be in compliance with all applicable laws, rules, and regulations as to condition and operation, including, but not limited to, those administered by the:
(i) United States Coast Guard,
(ii) Environmental Protection Agency,
(iii) Federal Communications Commission,
(iv) Public Health Service, or
(v) Their respective successor agencies, and
(vi) All applicable treaties and conventions to which the United States is a signatory, including, but not limited to, the International Convention for Safety of Life at Sea.
(d) Documentation. (1) An Eligible Export Vessel must be documented in a country that is party to the International Convention for Safety of Life at Sea, or other treaty, convention, or international agreement governing vessel inspection to which the United States is a signatory, and must comply with the applicable laws, rules, and regulations of its country of documentation, all applicable treaties, conventions on international agreements to which that country is a signatory, and the laws of the ports it serves.
(2) All other Eligible Vessels must be documented under U.S. registry.
(e) Reconstruction or reconditioning. Repairs necessary for the Vessel to meet the classification standards approved by us, or any regulatory body, or for previous inadequate maintenance and repair, will not constitute reconstruction or reconditioning within the meaning of this paragraph.
(f) Condition survey. If your application involves a reconstructed or reconditioned Vessel, you must make the Vessel available at a time and place acceptable to us so that we may conduct a condition survey. You must:
(1) Pay the cost of the condition survey.
(2) Ensure that the scope and extent of the condition survey will not be less effective than that required by the last ABS special survey completed (if the Vessel is classified), next due or overdue, whichever date is nearest in accordance with the Vessel's age.
(3) Ensure that the Vessel meets the standard of the survey necessary for retention of class (if the Vessel is classified), and
(4) Ensure that the operating records of the Vessel reflect normal operation of the Vessel's main propulsion and other machinery and equipment, consistent with accepted commercial experience and practice.
(g) Metric Usage. Our preferred system of measurement and weights for Vessels and Shipyard Projects is the metric system.
§ 298.12 Applicant and operator's qualifications.
(a) Operator's qualifications. We will not issue a Letter Commitment without a prior determination that you, the bareboat charterer, or other Person identified in the application as the operator of the Vessel(s) or Shipyard Project, possesses the necessary experience, ability and other qualifications to properly operate and maintain the Vessel(s) or Shipyard Project which serve as security for the Guarantees. You must also comply with all requirements of this part.
(b) Identity and ownership of applicant. In order for us to assess the likelihood that the project will be successful, we need information about you and the proposed project. To permit this assessment, you must provide the following information in your application for Title XI guarantees:
(1) Incorporated companies. If you or any bareboat charterer is an incorporated company, you must submit the following identifying information:
(i) Name of company, place and date of incorporation, and tax identification number, or if appropriate, international identification number of the company;
(ii) Address of principal place of business; and
(iii) Certified copy of certificate of incorporation and bylaws.
(2) Partnerships, limited partnerships, limited liability companies, joint ventures, associations, unincorporated companies. If you or any bareboat charterer is a partnership, limited partnership, limited liability company, joint venture, association, or unincorporated company, you must submit the following identifying information:
(i) Name of entity, place and date of formation, and tax identification number, or if appropriate, international identification number of entity;
(ii) Address of principal place of business; and
(iii) Certified copy of certificate of formation, partnership agreement or other documentation forming the entity.
(3) Other entities. For any entity that does not fit the descriptions in paragraphs (b)(1) and (b)(2) of this section, we will specify the information that the entity must submit regarding its identity and ownership.
(4) You and any bareboat charterer must provide a brief statement of the general effect of each voting agreement, voting trust or other arrangement whereby the voting rights of any interest in you or the bareboat charterer are controlled or exercised by any person who is not the holder of legal title to such interest.
(5) You and any bareboat charterer must provide the following information regarding the entity's officers, directors, partners or members:
(i) Name and address;
(ii) Office or position; and
(iii) Nationality and interest owned (for example, shares owned and whether voting or non-voting).
(c) Business and affiliations of applicants. You must include:
(1) A brief description of your principal business activities during the past five years.
(2) A list of all business entities that directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with you.
(3) The nature of the business transacted by each listed entity and the relationship between these entities. This information may be presented in the form of a chart.
(4) Whether any of the affiliated entities have previously applied for or received Title XI assistance.
(5) A statement indicating whether the applicant, any predecessor or affiliated entity has been in bankruptcy or reorganization under any insolvency or reorganization proceeding and if so, give details.
(6) A statement indicating whether the applicant or any predecessor or affiliated entity is now, or during the past five years has been, in default under any agreement or undertaking with others or with the United States of America, or is currently delinquent on any Federal debt, and if so, provide explanatory information.
(7) A list of your banking references:
(i) Principal bank(s) or lending institutions(s)—name and address;
(ii) Nature of relationship; and
(iii) Individual references—name(s), telephone and fax number of banking officer(s).
(d) Management of applicant. You must include:
(1) A brief description of the principal business activities during the past five years of each officer, director, partner or member you listed in paragraph (b)(5) of this section and if these persons (have) act(ed) as executive officers in other entities, indicate the names of these entities and whether such entities have defaulted on any U.S. Government debt, and
(2) The name and address of each organization engaged in business activities which have a direct financial relationship to those carried on or to be carried on by you with which any person listed in paragraph (d)(1) of this section has any present business connection, the name of each such person and, briefly, the nature of such connection.
(e) Applicant's property and activity. You must provide:
(1) A brief description of the general character and location of the principal assets employed in your business and those of your affiliate, other than vessels. Describe financial encumbrances, if any;
(2) A general description of the vessels currently owned and/or operated by you or your affiliates and a description of the areas of operation; and,
(3) In the case of an Eligible Shipyard which is an applicant for a guarantee for a Shipyard Project, a brief description of the general character (that is, the number of building ways, launch method, drydocks and size) and location (that is, water depth, length of riverfront) of the principal properties of the applicant employed in its business. You must also describe any financial encumbrances.
(f) Operating ability. (1) You must submit a detailed statement showing your ability to successfully operate the financed Vessel(s).
(2) If a company other than you will operate the Vessel(s), then the information in paragraph (f)(1) of this section must be provided for the operating company together with a copy of the operating agreement.
(3) You must submit a copy of any management agreement(s) between you and any related or unrelated organization(s) which will affect the management of the Title XI Vessel or shipyard.
(4) In the case of an Eligible Shipyard, which is an applicant for a guarantee for a Shipyard Project, a detailed statement must be submitted showing your ability to successfully operate the Shipyard Project and construct/reconstruct Vessels, including name, education, background of, and licenses held by, all senior supervisory personnel concerned with the physical operation of the Shipyard Project.
(5) Where an operator has an historical performance record, we will consider this record in evaluating your operating ability. For newly formed entities, we will evaluate the performance of affiliates and/or companies associated with the principals (where the principals have a significant degree of control) in determining your operating ability. However, unless the affiliates or principals have an obligation with respect to the debt, we will not consider historical performance in evaluating your creditworthiness.
§ 298.13 Financial requirements.
(a) In general. To be eligible for guarantees, you and/or your parent organization (when applicable), and any other participants in the project having a significant financial or contractual relationship with you must submit information, respectively, on their financial condition. You must submit this information at the time of the application. You must supplement this information if we require it in subsequent requests. You must submit information satisfactory to us to show that financial resources are available to support the Title XI project.
(b) Cost of the project. You must submit the following cost information with respect to the project:
(1) Vessel financing Guarantees. A detailed statement of the estimated Actual Cost of construction, reconstruction, or reconditioning of the Vessel(s) including those items which would normally be capitalized as Vessel construction costs. Net interest during construction is the total estimated construction period interest on non-equity funds less estimated earnings from the escrow fund, if such fund is to be established prior to Vessel(s) delivery.
(2) Foreign components. (i) You must exclude each item of foreign components and services from Actual Cost, unless we specifically grant a waiver for the item. We will not grant a waiver for major foreign components of the hull and superstructure.
(ii) In deciding whether to grant a waiver for foreign components and services, we will consider your certification, to be reviewed by us, stating that:
(A) A foreign item or service is not available in the United States on a timely or price-competitive basis, or
(B) The domestic item or service is not of sufficient quality.
(iii) Although excluded from Actual Cost, foreign components of the hull and superstructure can be regarded as owner-furnished equipment that may be used in satisfying your equity requirements imposed by paragraph (f) of this section.
(3) Costs incurred by written contracts. If any of the costs have been incurred by written contracts such as shipyard contract, management or operating agreement, you should forward signed copies with the application. We may require you to have the contracting shipyard submit back-up cost details and technical data. You must submit this information in the format given in the Title XI application procedures.
(4) Shipyard Project. In the case of Shipyard Project, a detailed statement of the actual cost of such technology, including those items which would normally be capitalizable. If you incurred any of the costs through written contracts, you should forward signed copies of the contract with the application. We may require you to have manufacturers submit back-up cost details and technical data. You must submit this information in the format given in the Title XI application procedures.
(5) Shore facilities, cargo containers, etc. A detailed statement showing the actual cost of any shore facilities, cargo containers, etc., required to be purchased in conjunction with the project.
(6) Additional project costs. A detailed statement showing any other costs associated with the project which were not included in paragraphs (b)(1) through (5) of this section, such as:
(i) Legal and accounting fees;
(ii) Printing costs;
(iii) Vessel insurance;
(iv) Underwriting fees;
(v) Fee to a Related Party; and
(vi) Other fees.
(7) Request for Actual Cost Approval and Reimbursement. If the project involves refinancing, you must also submit the exhibit entitled Request for Actual Cost Approval and Reimbursement, its summary sheet and supplemental schedules at the time of filing the application.
(c) Financing. (1) You must:
(i) Describe, in detail, how the costs of the project (sums referred to in paragraph (b) of this section) will be funded and the timing of such funding.
(ii) Include any vessel trade-ins, related or third party financings, etc.
(iii) Provide the proposed terms and conditions of all private funding, from both equity and debt sources and clearly identify all parties involved.
(iv) Obtain our approval of the terms and conditions for co-financing (involving a blend of Title XI and private financing for the debt portion), including the ability of the co-financiers to exercise their rights against collateral shared with us for any transaction.
(v) Demonstrate with financial statements that at least 12
(vi) Disclose all of the Vessel(s), Shipyard Project financing in the format given in the Title XI application procedures.
(2) Financial Information. You must provide us with financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP), and include notes that explain the basis for arriving at the figures except that for Eligible Export Vessels, your financial statements must be in accordance with GAAP if formed in the U.S., or reconciled to GAAP if formed in a foreign country unless a satisfactory justification is provided explaining the inability to reconcile. The financial statements must include the following [Note: MARAD will accept electronic options (such as facsimile and Internet) for transmission of required information to MARAD, if practicable.]:
(i) The most recent financial statements for you, your parent company and other significant participants, as applicable (year end or intermediate), and the three most recent audited statements with details of all existing debt. If you are a new entity and are to be funded from or guaranteed by external source(s), you must provide such statements for such source(s);
(ii) Your pro forma balance sheet and that of any guarantor (if applicable) as of the estimated date of execution of the Guarantees reflecting the assumption of the Title XI Obligations, including the current liability; and
(iii) Your pro forma balance sheets and that of the guarantor (if applicable) for five years after the Closing.
(Approved by the Office of Management and Budget under control number 2133–0005)(d) Financial definitions. For the purpose of this section and §§298.35 and 298.42 of this part:
(1) “Company” means any Person subject to financial requirements imposed under paragraph (f) of this section and in §298.35, as well as the reporting requirements imposed by §298.42.
(2) “Working Capital” means the excess, if any, of current assets over current liabilities, both determined in accordance with GAAP and adjusted as follows:
(i) In determining current assets you must exclude:
(A) Any securities, obligations or evidence of indebtedness of a Related Party or of any stockholder, director, officer or employee (or any member of his family) of the Company or of such Related Party, except advances to agents required for the normal current operation of the Company's vessels and current receivables arising out of the ordinary course of business and not outstanding for more than 60 days; and
(B) An amount equal to any excess of unterminated voyage revenue over unterminated voyage expenses.
(ii) In determining current liabilities, you must deduct any excess of unterminated voyage expenses over unterminated voyage revenue and add one half of all annual charter hire and other lease obligations (having a term of more than six months) due and payable within the succeeding fiscal year, other than charter hire and such other lease obligations already included and reported as a current liability on the Company's balance sheet.
(3) “Equity” or “net worth” means, as of any date, (the total of paid-in-capital stock, paid-in surplus, earned surplus and appropriated surplus,) and all other amounts that would be included in net worth in accordance with GAAP, but does not include:
(i) Any receivables from any stockholder, director, Officer or employee (or their family) of the Company or from any Related Party (other than current receivables arising out of the ordinary course of business and not outstanding for more than 60 days), and
(ii) Any increment resulting from the reappraisal of assets.
(4) “Long-Term Debt” means, as of any date, the total notes, bonds, debentures, equipment obligations and other evidence of indebtedness that would be included in long term debt in accordance with GAAP. You must include any guarantee or other liability for the debt of any other Person not otherwise included on the balance sheet.
(5) “Capitalizable Cost” means the aggregate of the Actual Cost of the Vessel or Shipyard Project and those other items which customarily would be capitalized as Vessel costs or Shipyard Project costs under GAAP.
(6) “Depreciated Capitalizable Cost” means the Capitalizable Cost of a Vessel or Shipyard Project, depreciated on a straightline basis over the same useful life as determined by us for Actual Cost, and depreciated as required by §298.21(g).
(e) Applicability. The financial resources must be adequate to meet the Equity requirements in the project and Working Capital requirements, as set forth in paragraph (f) of this section.
(1) The various financial requirements shall be met by the owner of the Vessel or Vessels or Shipyard Project to be security to us for the Guarantees, except that if the owner is not the operator, the overall financial requirements will be allocated among the owner, the operator and other parties as determined by us.
(2) The Company must satisfy the applicable financial requirements, in addition to any other financial requirements already imposed or which may be imposed upon it in connection with other Vessels financed under the Title XI program or in connection with other Shipyard Project financed under the Title XI program.
(3) A determination as to whether the Company has satisfied all financial requirements shall be based on the assumption that the projected financing has been completed. Accordingly, you must submit:
(i) A pro forma balance sheet at the time of the application, reflecting any adjustment made pursuant to paragraph (f)(1)(i) of this section, and
(ii) A revised pro forma balance sheet, reflecting the completion of the projected financing, at least five business days before the first Closing at which the Obligations are issued.
(f) Financial requirements at Closing. Financial requirements can apply to one or more Companies, and are determined as follows:
(1) Owner as operator. Where the owner is to be the Vessel operator, minimum requirements at Closing usually are as follows:
(i) Working Capital. The Company's Working Capital shall not be less than one dollar. This Working Capital requirement is based on the premise that the Company engages in a service-type activity with only normal vessel inventory. If Working Capital includes other inventory, in addition to such normal Vessel inventory, we may adjust the requirement as appropriate. Also, if we determine that the Company's Working Capital includes amounts receivable that it reasonably could not expect to collect within one year, we may make adjustments to the Working Capital requirements.
(ii) Long-Term Debt. The Company's Long-Term Debt must not be greater than twice its Equity.
(iii) Equity (net worth). The Company's Equity must be:
(A) The greater of:
(1) 50 percent of its Long-Term Debt; or
(2) 90 percent of its Equity as shown on the last audited balance sheet, dated not earlier than six months before the date of issuance of the Letter Commitment; or
(B) Such other amount as may be specified by us.
(2) Lessee or charterer as operator. Where a lessee or charterer is to be the Vessel operator, minimum requirements at Closing usually are as follows:
(i) Working Capital. The operator's Working Capital requirement will be the same as that which would have otherwise been imposed on the owner as operator under paragraph (f)(1)(i) of this section and based on the same premise stated in that paragraph.
(ii) Long-Term Debt. The operator's Long-Term Debt will be the same as that which would have otherwise been imposed on the owner as operator under paragraph (f)(1)(ii) of this section.
(iii) Equity (net worth). The operator's equity requirement will be the same as that which would have otherwise been imposed on the owner as operator under paragraph (f)(1)(iii) of this section.
(iv) The owner's Equity shall at least be equal to the difference between the Capitalizable Cost or Depreciated Capitalizable Cost of the Vessel (whichever is applicable) and the total amount of the Guarantees.
(3) Owner as General Shipyard Facility. Where the owner of Shipyard Project is a General Shipyard Facility, minimum requirements at Closing will be the same as those set forth in paragraph (f)(1) of this section for an owner as operator.
(g) Adjustments to financial requirements at Closing. If the owner, although not operating a Vessel, assumes any of the operating responsibilities, we may adjust the respective Working Capital and Equity requirements of the owner and operator, otherwise applicable under paragraph (f) of this section, by increasing the requirements of the owner and decreasing those of the operator by the same amount.
(h) Subordinated debt considered to be Equity. With our consent, part of the Equity requirements applicable under paragraphs (c) and (f) of this section may be satisfied by debt, fully subordinated as to the payment of principal and interest on the Secretary's Note and any claims secured as provided for in the Security Agreement or the Mortgage. Repayment of subordinated debt may be made only from funds available for payment of dividends or for other distributions, in accordance with requirements of the Title XI Reserve Fund and Financial Agreement (described in §298.35). Such subordinated debt shall not be secured by any interest in property that is security for Guarantees under Title XI, unless the Obligor and the lender enter into a written agreement, satisfactory to us, providing, among other things, that if any Title XI financing or advance by us to the Obligor shall occur in the future, such security interest of the lender shall become subordinated to any indebtedness to us incurred by the Obligor and to any security interest obtained by us in that property or other property, with respect to the subsequent indebtedness.
(i) Modified requirements. We may waive or modify the financial terms or requirements otherwise applicable under this section and §§298.35 and 298.42, upon determining that there is adequate security for the Guarantees. We may impose similar financial requirements on any Person providing other security for the Guarantees.
[65 FR 45152, July 20, 2000, as amended at 68 FR 62538, Nov. 5, 2003; 69 FR 61451, Oct. 19, 2004]
§ 298.14 Economic soundness.
(a) Economic Evaluation. We shall not issue a Letter Commitment for guarantees unless we find that the proposed project, regarding the Vessel(s) or Shipyard Project for which you seek Title XI financing or refinancing, will be economically sound. The economic soundness and your ability to repay the Obligations will be the primary basis for our approval of a Letter Commitment. We will consider the value of the collateral for which we will issue the Obligations as only a secondary consideration in determining your ability to repay the Obligations.
(b) Basic feasibility factors. In making the economic soundness findings, we shall consider all relevant factors, including, but not limited to:
(1) The need in the particular segment of the maritime industry for new or additional capacity, including any impact on existing equipment for which a guarantee under this title is in effect;
(2) The market potential for the employment of the Vessel or utilization of the Shipyard Project of a General Shipyard Facility over the life of the guarantee;
(3) Projected revenues and expenses associated with employment of the Vessel or utilization of the Shipyard Project of a General Shipyard Facility;
(4) Any charters, contracts of affreightment, transportation agreements, or similar agreements or undertakings relevant to the employment of the Vessel or utilization of the Shipyard Project of a General Shipyard Facility;
(5) For inland waterways, the need for technical improvements including but not limited to increased fuel efficiency, or improved safety; and
(6) Other relevant criteria.
(c) Project Feasibility. To demonstrate the economic feasibility of the project over the Guarantee period, you must submit the following information:
(1) Purpose. A detailed purpose for the obligations to be guaranteed.
(2) Necessary exhibits. Necessary exhibits to support your project feasibility as supplements to the application.
(3) Relevant market information. Information regarding the relevant market including a written narrative of the market (or potential market) for the project including full details on the following, as applicable:
(i) Nature and amount of cargo/passengers available for carriage and your projected share (provide also the number of units; that is containers, trailers, etc.);
(ii) Services or routes in which the Vessel(s) will be employed, including an itinerary of ports served, with the arrival and departure times, sea time, port time, hours working or idle in port, off hire days and reserve or contingency time, proposed number of annual sailings and number of annual working days for the Vessel(s) or, with respect to Shipyard Project, how the equipment will be employed;
(iii) Suitability of the Vessel(s) or Shipyard Project for their anticipated use;
(iv) Significant factors influencing your expectations for the future market for the Vessel(s) or Shipyard Project, for example, competition, government regulations, alternative uses, and charter rates; and
(v) Particulars of any charters, contracts of affreightment, transportation agreements, etc. You should supplement the narrative by providing copies of any marketing studies and/or supporting information (for instance, existing or proposed charters, contracts of affreightment, transportation agreements, and letters of intent from prospective customers).
(vi) The potential for purchasing existing equipment of a reasonable condition and age from another source, including information regarding:
(A) Market assessment concerning the availability and cost of existing equipment that may be an alternative to new construction or the new Shipyard Project;
(B) The cost of modification, reconditioning, or reconstruction of existing equipment to make it suitable for intended use; and
(C) Descriptions of any bids or offers which you had made to purchase existing equipment, especially Vessels which currently are financed with Title XI Obligations including date of offer, Vessels, and amount of offer.
(4) Revenues. A detailed statement of the revenues expected to be earned from the project based upon the information in paragraph (c) of this section. Vessel revenue projections shall include shipping/hire rates for current market conditions or market conditions expected to exist at the time of Vessel delivery taking into account seasonal or temporary fluctuations. The revenues shall be based on a realistic estimate of the Vessel(s) or the new Shipyard Project utilization rate and at a breakeven rate for the project. A justification for the utilization rate shall be supplied and should indicate the number of days per year allowed for maintenance, drydocking, inspection, etc.
(5) Expenses for Vessel financing. For applications for Vessel financing, a detailed statement of estimated Vessel expenses including the following (where applicable):
(i) Estimated Vessel daily operating expenses, including wages, insurance, maintenance and repair, fuel, etc. and a detailed projection of anticipated costs associated with long term maintenance of the Vessel(s) such as drydocking and major mid-life overhauls, with a time frame for these events over the period of the Guarantee;
(ii) If applicable, a detailed breakdown of those expenses associated with the Vessel(s) voyage, such as port fees, agency fees and canal fees that are assessed as a result of the voyage; and
(iii) A detailed breakdown of annual capital costs and administrative expenses, segregated as to:
(A) Interest on debt;
(B) Principal amortization; and
(C) Salaries and other administrative expenses (indicate basis of allocation).
(6) Expenses for a Shipyard Project. For applications for a Shipyard Project, a statement of estimated expenses related to the Shipyard Project, including the following (where applicable):
(i) A detailed breakdown of estimated daily operating expenses for the shipyard, such as wages, including staffing, and segregated as to straight-time, overtime and fringe benefits; utility costs; costs of stores, supplies, and equipment; maintenance and repair cost; insurance costs; and, other expenses (indicate items included); and
(ii) A detailed breakdown of annual capital costs and administrative expenses, segregated as to:
(A) Interest on debt;
(B) Principal amortization; and
(C) Salaries and other administrative expenses (indicate basis of allocation).
(7) Forecast of Operations. Utilizing the revenues and expenses provided in paragraphs (c)(4),(5) and (6) of this section, you shall provide a forecast of operating cash flow, as defined in paragraph (d)(4) of this section, for the Title XI project for the first full year of operations and the next four years. The cash flow statements should be footnoted to explain the assumptions used.
(d) Objective Criteria. We must make a finding of economic soundness as to each project based on an assessment of the entire project. In order for the project to receive approval, we must determine that a project meets the following criteria:
(1) The projected long-term demand (equal to length of time that you request financing) for the particular Vessel(s) or new Shipyard Project to be financed must exceed the supply of similar vessels or new shipyard project in the applicable markets. We will determine the supply of similar vessels and similar shipyard projects based on:
(i) Existing equipment,
(ii) Similar vessels or new shipyard project under construction, and
(iii) The projected need for new equipment in that particular segment of the maritime industry.
(2) We will base our determination of the project's economic soundness on the following:
(i) Conformity of your projections with our supply and demand analyses;
(ii) Availability of charters, letters of intent, outstanding contractual commitments, contracts of affreightment, transportation agreements or similar agreements or undertakings; and
(iii) Your existing market share compared with the market share necessary to meet projected revenues.
(3) In cases where market conditions are temporarily inadequate for you to service the Obligation indebtedness at the time of Vessel delivery, or completion of the Shipyard Project, we may approve your application only if you have sufficient outside sources of cash flow to service your indebtedness during this temporary period.
(4) With respect to the asset for which Obligations are to be issued, the operating cash flow to Obligation debt service ratio over the term of the Guarantee must be in excess of 1:1. Operating cash flow means revenues less operating and capital expenses including taxes paid but exclusive of interest, accrued taxes, depreciation and amortization for the Title XI asset. Debt service means interest plus principal.
§ 298.15 Investigation fee.
(a) In general. Before we issue a Letter Commitment, you shall pay us an investigation fee. The Letter Commitment will state the fee which is based on the formula in paragraph (b) of this section.
(1) The investigation fee covers the cost of the investigation of the project described in the application and the participants in the project, the appraisal of properties offered as security, Vessel inspection during construction, reconstruction, or reconditioning (where applicable) and other administrative expenses.
(2) If, for any reason, we disapprove the application, you shall pay one-half of the investigation fees.
(b) Base Fee. (1) The investigation fee shall be one-half (
(2) One-eighth (
(c) Credit for filing fee. You will receive credit for the $5,000 filing fee that you paid upon filing the original application (described in §298.3) towards the investigation fee.
§ 298.16 Substitution of participants.
(a) You may request our permission to substitute participants to a Mortgage and/or Security Agreement in a financing that is receiving assistance authorized by Title XI of the Act.
(b) A non-refundable fee of $3,000 is due, payable at the time of the request. The fee defrays all costs of processing and reviewing a joint application by a mortgagor and/or Obligor and a proposed transferee of a Vessel or Shipyard Project, which is security for Title XI debt, if the proposed transferee is to assume the Mortgage and/or the Security Agreement.
§ 298.17 Evaluation of applications.
(a) In evaluating project applications, we shall also consider whether the application provides for:
(1) The capability of the Vessel(s) serving as a naval and military auxiliary in time of war or national emergency.
(2) The financing of the Vessel(s) within one year after delivery.
(3) The acquisition of Vessel(s) currently financed under Title XI by assumption of the total obligation(s).
(4) The Guarantees extend for less than the normal term for that class of vessel.
(5) In the case of an Eligible Shipyard, the capability of the shipyard to engage in naval vessel construction in time of war or national emergency.
(6) In the case of Shipyard Project, the Guarantees extend for less than the technological life of the asset.
(b) In determining the amount of equity which you must provide, we will consider, among other things, the following:
(1) Your financial strength;
(2) Adequacy of collateral; and
(3) The term of the Guarantees.
§ 298.18 Financing Shipyard Projects.
(a) Initial criteria. We may issue Guarantees to finance a Shipyard Project at a General Shipyard Facility. We may approve such Guarantees after we consider whether the Guarantees will result in shipyard modernization and support increased productivity.
(b) Detailed statement. You must provide a detailed statement, with the Guarantee application, which will provide the basis for our consideration.
(c) Required conditions. We shall approve your application for loan guarantees under this section if we determine the following:
(1) The term for such Guarantees will not exceed the reasonable economic useful life of the collective assets which comprise this Shipyard Project;
(2) There is sufficient collateral to secure the Guarantee; and
(3) Your application will not prevent us from guaranteeing debt for a Shipyard Project that, in our sole opinion, will serve a more desirable use of appropriated funds. In making this determination, we will consider:
(i) The types of vessels which will be built by the shipyard,
(ii) The productivity increases which will be achieved,
(iii) The geographic location of the shipyard,
(iv) The long-term viability of the shipyard,
(v) The soundness of the financial transaction,
(vi) Any financial impact on other Title XI transactions, and
(vii) The furtherance of the goals of the Shipbuilding Act.
§ 298.19 Financing Eligible Export Vessels.
(a) Notification to Secretary of Defense. (1) We will provide prompt notice of our receipt of an application for a loan Guarantee for an Eligible Export Vessel to the Secretary of Defense.
(2) During the 30-day period, beginning on the date on which the Secretary of Defense receives such notice, the Secretary of Defense may disapprove the loan guarantee if the Secretary of Defense makes an assessment that the Vessel's potential use may cause harm to United States national security interests.
(3) The Secretary of Defense may not disapprove a loan Guarantee under this section solely on the basis of the type of vessel to be constructed with the loan Guarantee. The authority of the Secretary of Defense to disapprove a loan Guarantee under this section may not be delegated to any official other than a civilian officer of the Department of Defense appointed by the President, by and with the advice and consent of the Senate. We will not approve a loan guarantee disapproved by the Secretary of Defense.
(b) Vessel eligibility. We may not approve a Guarantee for an Eligible Export Vessel unless:
(1) We find that the construction, reconstruction, or reconditioning of the Vessel will aid in the transition of United States shipyards to commercial activities or will preserve shipbuilding assets that would be essential in time of war or national emergency;
(2) The owner of the Vessel agrees with us that the Vessel shall not be transferred to any country designated by the Secretary of Defense as a country whose interests are hostile to the interests of the United States; and
(3) We determine that the countries in which the shipowner, its charterers, guarantors, or other financial interests supporting the transaction, if any, have their chief executive offices or have located a substantial portion of their assets, present an acceptable financial or legal risk to our collateral interests. Our determination will be based on confidential risk assessments provided by the Inter-Agency Country Risk Assessment System and will take into account any other factors related to the loan guarantee transaction that we deem pertinent.
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